RiskWise downgrades property risk as Labor loses the unlosable election

RiskWise Property Research has significantly downgraded the risks to our real estate market, particularly in the Sydney and Melbourne property markets , following the shock results of the Federal election.

Labor’s loss has eliminated the number one risk to the property market and this, combined with the high likelihood of interest rate cuts by the RBA this year and the first home buyers’ scheme, will support the bottoming of the market by the end of the year and then a gradual recovery. 30307218_l2

Fears of a Labor win, and with it its proposed changes to negative gearing and capital gains tax, had a major impact on buyer sentiment, particularly investors, who saw residential properties as depreciating assets.

Our April Quarterly Risks & Opportunities Report identified two key factors that would have major impact on the market, particularly in Sydney and Melbourne, being the proposed taxation changes and interest rate cuts by the RBA.

The number one risk of a Labor win has been eliminated.

What we saw happening was the ALP’s proposed changes have, rightfully, had a major, and tangible, impact on buyer confidence, which RiskWise identified in its report, Impact Analysis: Negative Gearing, CGT and Australia’s Residential Property Market.

Those, jointly with APRA’s credit restrictions and the banks’ scrutiny of loan applications as a result of the Royal Commission, lead to major price reductions, uncertainly and impacted buyer sentiment, according to the Westpac Consumer Report, which found house price expectations were extremely low.

property investors

This meant even before an actual ALP win, the high possibility of these taxation changes had impacted the property market.

The Coalition win has eliminated the uncertainty and complexity in the market associated with the taxation changes, as well as significantly mitigated the property downturn, given it can be demonstrated the price reductions were, in part, due to fears of the proposed taxation changes.

In addition, with the other key factor we identified in our Quarterly Risks & Opportunities Report that RBA are extremely likely to undertake two interest rate cuts by the end of the year, we should expect the market to bottom by the end of 2019 followed by gradual price increases.

While the impact is likely to be lower than the impact of interest rate cuts in a higher interest rate environment, this will still have a very positive impact on the market, as rental returns in Sydney and Melbourne are, generally, very low.

Therefore, interest rate cuts will materially reduce the ‘out-of-pocket’ costs for property investors.

Interest rate cuts will increase dwelling demand, decrease price reductions in weaker markets, support the recovery in Sydney and Melbourne markets, and increase prices in areas that enjoy good demand and show resilience.

In addition, on May 11, Prime Minister Scott Morrison announced a first home buyers’ scheme, which will allow those eligible to buy with only a 5 per cent deposit rather than the standard 20 per cent and help stimulate the market. Royal Commission Into Misconduct In The Banking

While, overall, there would be major improvement in comparison to the situation in April, there were still risks associated with the property market.

Tighter lending standards, the findings of the Banking Royal Commission, restrictions on foreign investors, unit oversupply and large falls in dwelling commencements still all had a material impact on the market.

Weak markets with continuous price reductions, weak economies and poor population growth will take longer to recover and will require a more conservative and risk aware investment strategy.

While there has been a reduction in dwelling commencement, sale of new units are still very low and, therefore, in some areas it could take a longer period of time for the stock to be absorbed into the market meaning the risk is still high in many areas.

Metropole Property Strategists

icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Doron Peleg

About

is the CEO/Founder of RiseWise Property Review. He has more than 20 years’ experience in risk management including, Co-Founder of Peleg, Kessel & Co, an assurance and advisory accounting firm & Executive Manager at Westpac Banking Corporation in Sydney. www.riskwiseproperty.com.au/


'RiskWise downgrades property risk as Labor loses the unlosable election' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


facebook
twitter
email